FocusEurope polyolefin buyers frustrated at extreme price volatility

24 August 2012 10:10  [Source: ICIS news]

By Linda Naylor

Frustrated manLONDON (ICIS)--European polyethylene (PE) and polypropylene (PP) converters are becoming increasingly frustrated at what many see as unprecedented price volatility, as they prepare themselves for another big hike in September amid a rising spot market and higher upstream pricing, several said on Friday.

“I’ve been in this market for 12 years and have never seen anything like it,” said one polymer buyer.

PE and PP pricing has been erratic throughout 2012, and now buyers are facing another big increase in September, as naphtha prices soar and supply is restricted following a surge in demand that has seen converters restocking.

Naphtha closed the day at $972-974/tonne CIF (cost insurance freight) NWE (northwest Europe) on Thursday, up from a low of $683/tonne CIF NWE during the week ending 22 June.

This surge in pricing since June has sent producers searching for increases in the PE and PP markets, to recover lost margin, and buyers, whose inventories were very low, have had no choice but to acquiesce.

In the first quarter of 2012, low density polyethylene (LDPE) monthly prices rose by over €300/tonne; by the end of June 2012, they had fallen by €200/tonne; they fell by as much as €170/tonne in July, rallied by the end of July, and have risen by up to €200/tonne in August. Some sources are now talking of more €200/tonne hikes in September, while others think a milder increase might be more appropriate.

LDPE net prices are trading at around €1,350-1,400/tonne FD (free delivered) NWE (northwest Europe) in August, from a low of €980/tonne FD NWE, at the end of June.

Similarly PP homopolymer injection net spot prices were at €1,000/tonne FD NWE, and are now approaching the €1,300/tonne FD NWE level.

“What is really difficult is to manage all these changes of up to 10% a month,” said the buyer.

“Our buyers think we are bonkers,” said another, explaining that it was hard to persuade their own customers that prices have dropped by €170/tonne one month, only to rally by €200/tonne the next.

Others expressed deeper frustration:

“It’s hysterical. How they expect us to cope with this I don’t know,” said another buyer.

Producers, however, say they cannot continue to supply polymer at current levels without losing money, so increases are inevitable.

To procure extra quantities ahead of September has been out of the question for all buyers.

“It is impossible to stock up because they simply won’t sell to me,” said yet another buyer.

As a backdrop to the frenzy of higher naphtha and polymer prices, and the certainty that September prices will jump futher, lies the reality of the European economic situation, however.

“They [producers] will have to take a dose of reality,” said one of the buyers. “The market is poor.”

Some producers acknowledge that September could be the swan song for 2012. Fourth-quarter demand is not expected to be strong, and they intend to keep a close eye on stocks.

“Europe is at the edge of the cash cost curve,” said one, “I intend to run my inventories as low as possible.”

Another said: “For a freefall to happen we need to have inventory.”

“Fundamental demand is not there,” added another buyer. “This is all a matter of inventory.”

So if everybody is aware of the danger of the current delicate price situation, will measures be brought in to ensure that another big price swing doesn’t take place when cracker margins begin to improve again, or will improved margins prove too tempting for cracker operators?

($1 = €0.80)

By: Linda Naylor
+44 20 8652 3214

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